Horton Business Group

Experts at Buying and Selling
Businesses

Valuing Your
Business

Most companies are sold as ongoing
concerns. This means that they are profitable and are expected to be
profitable in the future and not sold on the basis of assets but on
a basis of their earning power. The value of these businesses is
based on how much profit they expect to earn.

Profit is defined as what is
available to the owner. This may be cast into a net cash flow or
discretionary cash flow available to the owner. If one uses
net cash flow, using a rate of return or discount rate one can
estimate value. If using discretionary cash flow then comparable
business sales can be used to estimate value.

The key is that value or sales
price of the business is based on its cash flows. To demonstrate
value or worth to the buyer, this supporting data needed for these
estimates should be communicated. To this end, detailed
accurate financial statements are needed.